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Jan

2026

A person sits at a table with a cup of coffee, holding a tablet and exploring foreign currencies, displayed on the screen.

The Essential Guide to Investing in Foreign Currency

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

The foreign exchange market, or forex (FX), is the decentralized global market for trading fiat currencies. Forex is the largest, most liquid form of investing in the world, with an average daily trading volume of about $9.6 trillion, as of April 2025.

Forex traders buy and sell foreign currency pairs with the aim of profiting from often minute fluctuations in exchange rates. For example, an investor could trade their U.S. dollars (USD) for Euros (EUR). Or, they can trade their Japanese yen (JPY) for New Zealand dollars (NZD).

When the value of one currency rises relative to another, traders may see a gain or a loss, depending on which currency they are buying or selling. Investors must qualify to trade forex, which is a high-risk endeavor and typically involves the use of leverage.

Table of Contents

Understanding Foreign Currency Investment
Exploring the Benefits of Investing in Foreign Currencies
4 Ways to Invest in Foreign Currencies
Risks Associated with Foreign Currency Investment
Investing in Forex: Key Points
Currency Investment Strategies for Beginners
Find New Opportunities With Currency ETFs
Advanced Currency Investment Options
FAQ

Key Points

• Foreign currency investment, or forex, is the most liquid form of investing globally.

• Forex traders aim to profit by buying and selling currency pairs based on often minute fluctuations in exchange rates.

• Key benefits of investing in foreign currencies include portfolio diversification, 24/5 accessible markets, and a potential hedge against domestic inflation.

• Forex investors must qualify to place these trades, and qualify for a margin account in order to use leverage.

• Investors can gain exposure to foreign currency through a standard forex trading account, currency CDs, foreign bond funds, currency ETFs, and more.

Understanding Foreign Currency Investment

Although there are no centralized foreign currency exchanges, as there are for stocks, forex markets operate via a global network of banks and are open 24 hours a day, five days a week, excluding weekends.

Forex traders strategize around how they expect currency rates to fluctuate; when the value of one currency, such as the dollar (USD), rises relative to another currency, such as the Euro (EUR), traders can either see a profit or a loss, depending on whether they buy or sell the currency that has appreciated.

Traders use standardized abbreviations for each currency that are three letters and act as a kind of ticker symbol, or unique identifier (USD for the U.S. dollar, GBP for the British pound, CAD for the Canadian, and so on). The first two letters indicate the country; the last letter refers to the currency name.

How Currency Pairs Work

Forex trading is conducted using currency pairs, simultaneously buying one and selling the other when the price changes in the desired direction. Thus a forex trade will employ a format that uses both abbreviations: e.g., JPY/CAD or USD/EUR. The first currency is the base, the second is the quote. In order to trade forex, one has to become familiar with the conventions for quoting currency prices.

For example, according to Investor.gov, it’s typical to see the Euro exchange rate quoted in terms of dollars. So a EUR quote of 1.20 means that $1,200 USD will buy 1,000 Euros.

Forex for Retail Investors

Forex trading wasn’t available to retail investors until the 1990s, when the internet made electronic trading platforms possible, and margin was allowed. Prior to that, institutional investors typically placed forex trades over-the-counter (OTC) through a system of dealers and financial institutions known as the interbank market.

Now, however, it’s possible for qualified retail investors to place forex trades using standard broker-dealers. Retail investors may also access the forex derivatives market through futures, swaps, and forwards. The use of margin in forex trades is more complicated than when buying and selling other securities, so it’s important to understand the terms.

Exploring the Benefits of Investing in Foreign Currencies

Like other types of investments, forex trading, or investing in foreign currencies, can offer some benefits.

Portfolio Diversification

For one, investing in foreign currencies can add a degree of diversification to an investor’s portfolio. That means that while an investor may have built a portfolio with a number of other investments, such as stocks, bonds, and ETFs, foreign currency can be another element in the mix. Note, though, that it’s likely foreign currency should only comprise a small portion of a portfolio’s overall holdings.

Convenience and Accessible Markets

The forex markets operate 24 hours per day, five days a week, excluding weekends, unlike the standard stock exchanges. So, for investors who want to trade around the clock, the markets are almost always accessible.

There are four major forex trading sessions in a 24-hour period, split up by international region:

• Sydney (Australia)

• Tokyo (Asia)

• London (Europe)

• New York (The Americas)

Forex investors can trade from 22:00 UTC Sunday (in Sydney) to 22:00 UTC Friday (in New York). Check the local time in UTC, or Universal Time Coordinated, for your area.

There are minor sessions, too, but these are the four major sessions, and markets can be busy (when the Americas’ session overlaps with Europe’s), or less busy, depending on the time of day, and how many people are actively trading.

Hedge Against Domestic Currency Inflation

It’s possible that while a domestic currency is losing value due to inflation, foreign currencies could retain their value at the same time. That would, theoretically, provide investors with a hedge against inflation, but there’s no guarantee prevailing market forces would work to an investor’s advantage in such a scenario.

4 Ways to Invest in Foreign Currencies

There are several ways to get started in currency exchange investment.

1. Standard Forex Trading Account

First, you can work with a foreign exchange brokerage to trade the currency you’re holding (such as U.S. dollars) for another currency (Euros, Yen, etc.). The goal is that the currency you’re trading for, or buying, will increase in value relative to the currency you’re trading away, or selling.

Only qualified investors can trade forex, because it requires a margin account.

While the goal is straightforward, the process can get more complicated. For instance, there are a few ways to execute trades, such as spot trading, forward trading, and future trading. Spot trading is an instant cash trade, whereas forward and future trading may involve settling on terms at a time in the future (similar to trading options).

Further, investors should understand the concept of the bid-ask spread, which represents the difference between the buy and the sell price of a currency.

2. Currency CDs and Savings Accounts

Investors can also look into foreign currency CDs (certificates of deposit), which work more or less like traditional CDs but might offer higher yields.

Foreign savings accounts are another potential option, although it depends on local regulations. In some cases you must be a resident to open a savings account in another country.

3. Foreign Bond Funds

Investors can look at the possibility of purchasing foreign bonds, which are issued in other countries by foreign governments or foreign companies. There are many types of foreign bond investment types, and the credit quality will depend on the entity issuing the bond.

4. Currency ETFs

As mentioned, investors may want to look at currency ETFs. These ETFs are similar to foreign bond funds; there are also foreign currency ETFs on the market, which offer many of the same advantages of domestic or traditional ETFs, but can give investors exposure to the forex market. Likewise, exchange-traded notes, or ETNs, which are similar to bonds, are another potential investment investors can check out.

Risks Associated with Foreign Currency Investment

Foreign currency investment isn’t without risk, and in fact, can introduce some types of risk that investors may not otherwise encounter, such as political and interest rate risks.

Market Volatility and Political Risks

Since forex markets are so active, prices can change quickly, which means it’s a fairly volatile asset class. The news cycle (including economic, political, or social news) can cause sudden and drastic changes to prices. That means it may be a better fit for investors with a relatively high risk tolerance than those who are more risk averse.

Political risk is something to consider, too, as all currencies are backed by governments. If a foreign government is unstable or otherwise involved in some sort of political drama, it can affect the price of a currency. That can pose a risk to investors.

Interest Rate Risk

Some investments incur interest rate risk, which is when an investment loses value due to a fluctuation in interest rates. Foreign currencies may be subject to such risk, though interest rate risk is more commonly associated with bonds.

Currency Conversion and Transfer Costs

There may also be additional costs associated with currency trading and investing, including currency conversion and transfer costs. These may not always be applicable, but are something that investors should at least be aware of in the event that they do encounter them.

Investing in Forex: Key Points

In order to invest in foreign currency investing as safely as possible, remember, no investment is completely safe or risk-free, investors should brush up on the mechanics of the forex market.

Education Is Key

It’s important to understand the use of “pips,” as well as leverage in forex trading.

• Ticks and Pips. A “pip” is a unit of measure that represents the smallest unit of value in a currency quote, which goes out to four decimal places: 0.0001. Using the above quote as an example, the difference between the “bid” (1.2100) and the “ask” (1.2104) is four pips. Ten ticks equal one pip.

Why does this matter? Because currency values fluctuate very slightly during the trading day, perhaps only several pips. That means that to make a significant return, traders deal with large quantities of currencies, which typically require margin, or leverage.

• Leverage. To get to those large quantities, traders who qualify may use a margin account. For example, you may give your broker $1,000 to place a $10,000 trade, essentially borrowing $9,000 on margin. Most forex trading is done this way, using leverage and margin in order to generate returns.

That, of course, has its risks, since traders may incur losses and end up owing money to their brokers. In addition, using a margin account comes with terms and restrictions that can also impact trades.

The Importance of the Bid-Ask Spread

Also noted previously, the bid-ask spread is another important concept to know and incorporate if you’re trading or investing in foreign currency.

Effectively, the spread refers to the difference between a trader’s cost and the dealer’s profits. There’s a slight difference in what you’re willing to pay and what a seller is willing to sell for. In forex trading, the spread can be important to calculating overall potential returns.

Evaluating Risks Versus Rewards

Above all, it’s critical that investors keep their own personal risk tolerances in mind and weigh that against the potential gains they could see from foreign currency investing. It may not be a good fit for everyone’s investment strategy.

Currency Investment Strategies for Beginners

As noted, investing in or trading foreign currency involves pairs of currencies. Some currencies are more widely traded than others and are “paired” with one another or grouped as “major” currencies:

• U.S. dollars

• Euros

• Japanese yen

• British pounds

• Swiss francs

• Australian dollars

• Canadian dollars

• New Zealand dollars

There are also “minor” and “exotic” currency pairs. These are not traded as widely as the majors, but are still often swapped on exchanges. They may include pairings with the Hong Kong dollar, the Mexican peso, the Singapore dollar, or the Norwegian krone, among others.

Additionally, investors should know about foreign currency quotes. These quotes are similar to stock quotes, which list the current value, or price of a stock. Forex quotes display the bid and ask prices for a currency pair, since one currency’s value is relative to another currency. Here’s an example of a quote for a common pairing, Euros and U.S. dollars:

EUR/USD = 1.2100

In this example, Euros are the “base” currency, and U.S. dollars are the “quote” currency. That means that a single Euro is equal to 1.21 U.S. dollars.

Find New Opportunities With Currency ETFs

As mentioned, investors may want to look at currency ETFs, which offer many of the same advantages of domestic or traditional ETFs, but can give investors exposure to the forex market.

Advanced Currency Investment Options

While investors can trade currency itself, they can also look at more advanced ways of investing in the forex markets. That can include trading futures and options, or other types of relevant derivatives.

Foreign Currency Futures and Options

First and foremost, investors should be aware of the unique risks that financial derivatives can introduce into their portfolios. Trading options contracts is different from choosing stocks, so before you dive headfirst into forex options, it’s important to understand these strategies.

Currency options are derivatives, with currency itself as their underlying asset. There are calls, puts, and futures. If you’re not familiar with traditional options, it may be a good idea to review the basics before looking at forex options.

In effect, though, these options allow investors to hedge against unfavorable fluctuations of foreign currencies or to speculate on volatility in the forex market.

The Takeaway

Trading or investing in foreign currency is yet another avenue that investors can explore. As discussed, forex trading involves buying one currency with another, with the hopes that the price differences will work in the investors’ favor. Foreign currency markets are extremely liquid, which is another potential upside for some traders.

As always, though, there are risks to consider, and learning the ropes of the foreign currency markets may be tricky. If investors feel like they want to get their feet wet in the market, though, without diving straight in, it may be worthwhile to discuss their plans with a financial professional.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

How does forex work in plain English?

Forex trading means buying one currency and selling another with the aim of seeing a profit. For example, if you use U.S. dollars to buy Euros, you might be able to buy more Euros if the value drops relative to the dollar and then sell the Euros for dollars when the value rises again.

Why is forex so risky?

Because the FX market is the biggest, most liquid global asset market, foreign currency prices can fluctuate rapidly. Combine that with the fact that trades are typically placed using substantial amounts of leverage, and there is a high degree of risk involved in most trades.

What is the Rule of 90 in forex?

This is a broad rule-of-thumb which states that 90% of new traders will experience major losses within 90 days that will wipe out 90% of their capital. This is meant as a reminder to exercise caution; it may not be literally true, but it speaks to the risks involved.

Photo credit: iStock/anyaberkut

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Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

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SOIN-Q425-058

Jan

2026

10 Surprising Credit Card Debt Facts

By SoFi Editors | Credit, Debt Payoff, personal_loan | No Comments

If you’re like most Americans, you love your plastic and swiping or tapping through your day. In fact, about 74% of Americans have at least one credit card, according to the Federal Reserve Bank of New York, with the average wallet holding more than three, according to data from Experian®.

The national love affair with credit cards is built on their convenience, how they provide a line of credit to enable buying things we can’t quite afford to pay for with cash, and those enticing rewards that are often offered.

But the picture is not altogether rosy: As a nation, US citizens have more than $1.2 trillion in credit card debt. And with interest rates averaging over 20%, that debt can be hard to chip away at.

To help you better understand how credit cards work, how much credit card debt people typically have, and what are smart strategies for paying down credit card debt, keep reading. You’ll learn interesting facts as well as helpful hints.

Table of Contents

10 Facts About Credit Card Debt
Why Is Credit Card Debt So Common?
Tips on Avoiding Credit Card Debt
FAQ

Key Points

• 46% of Americans carry credit card debt: Almost half of active credit card accounts have an outstanding balance.

• Average credit card debt is $6,731: High interest rates make repayment difficult, with balances growing over time.

• 65% of college students have credit card debt, often due to nonessential spending.

• Research found that 33% of Americans have more credit card debt than emergency savings.

• As more Americans look for an exit strategy from credit card debt, personal loans offer a cheaper, more predictable alternative.

10 Facts About Credit Card Debt

Ready to learn more about credit card debt, a form of revolving debt? These 10 credit card facts will help you better understand who has how much debt and where difficulties paying the balance typically crop up.

1. Almost Half of Americans Have Outstanding Credit Card Debt

Recent research shows that 46% of Americans carry a credit card balance as of late 2025. This indicates that carrying a balance is a common situation for many Americans, even with the eye-wateringly high interest that’s charged.

2. People with Credit Card Debt Owe an Average of Almost $7,000

Americans had an average credit card balance of $6,731, according to TransUnion® data. Of those with a balance, most carried it for at least a year.

Just because this is the norm, it doesn’t mean that it’s ideal: The best-case scenario is to only charge as much as you can afford to pay off in full every month.

💡 Quick Tip: Credit card interest caps are a hot topic, as American credit card debt continues to rise. Balances on high-interest credit cards can be carried for years with no principal reduction. A SoFi personal loan for credit card debt may significantly reduce your timeline and could save you thousands in interest payments.

3. It Can Take More Than a Decade to Pay Off $7,951 in Debt

Racking up credit card debt takes much less time than getting rid of it. Say that, like the average American, you have $6,731 in credit card debt, as noted above.

At an interest rate of 20% on existing, with a $150 monthly payment, it would take you 84 months — or seven years — to pay that off. And you would pay $5,773 in interest, or almost as much as the original amount you charged!

But the more you can pay each month, the faster you’ll extinguish the debt. In this example, if you increase your monthly payment to $500, you’d pay off the debt in just 16 months and only spend $955 in interest. These scenarios are, however, assuming that you are not accruing new debt and therefore paying off larger credit card bills.

4. Gen Xers Have the Most Credit Card Debt

Ready for more credit card facts? Here is how age and debt intersect. Gen Xers, the generation that includes people born between 1965 and 1980, have the highest percentage who carry credit card debt at 55%. Next in line are Millennials, born between 1981 and 1996, with 49% carrying credit card debt.

5. Alaskans Have the Highest Credit Card Debt

In a state-by-state analysis of credit card debt, Alaska residents led the pack with $8,026 per person. Those who live in Iowa were found to have the lowest at $4,774.

6. 65% of College Students Have Credit Card Debt

The habit of carrying credit card debt unfortunately starts early, with more than six out of 10 college students carrying a balance on their credit cards. Some of this may well be due to nonessential purchases, such as impulse buys, Uber rides, or fancy coffees.

7. One in Three Americans Owes More On Credit Cards Than They Have Saved for Emergencies

This may be a scary fact about debt, but one in three US adults owes more on their credit card than they have saved for emergencies. In fact, 33% say this is the case. This shows a two-sided problem: too much spending and too little saving.

Recommended: Paying Off $10,000 in Credit Card Debt

8. Richer People Have Credit Card Debt Longer

More interesting credit card debt facts: According to recent data, 62% of those who earn $300,000 or more a year struggle with credit card debt. Perhaps this statistic suggests that high-earners feel they have the means to handle debt and therefore don’t rush to repay it.

9. Men Have More Debt Than Women

Men have an average of $6,357 in credit card debt, while women have an average of $6,232. Perhaps not a huge difference, but so much for the myth of women shopaholics using credit cards to fill an overflowing closet with shoes.

There are many potential reasons for this difference, but some studies have found that women are less comfortable with debt. Also, there is still a gender gap in earning, which could impact spending and debt.

10. There’s a Good Chance You’ll Die With Credit Card Debt

Here’s the last of these debt facts, and it can be a grim one: Nearly three-fourths of Americans are in debt when they die, according to one benchmark study.

And 73% die with credit credit card balances. That’s not exactly a desirable legacy. Although family members don’t generally become responsible for the debt, it may be taken out of the deceased person’s estate.

Why Is Credit Card Debt So Common?

There are many reasons that Americans have so much credit card debt, from rising healthcare and educational costs to lack of emergency savings to a cultural consumerism that encourages people to live beyond their means.

Regarding that last point, you may hear about the phenomenon referred to as Fear of Missing Out or FOMO spending, which is a modern version of “keeping up with the Joneses.” In other words, because your friends, coworkers, or influencers you follow on social media are buying something, you feel you should as well.

Or perhaps part of the problem can be explained by what is known as lifestyle creep. This situation occurs when you earn more money but your spending rises too, so your wealth doesn’t grow. For example, if you took a new, higher-paying job and decided to lease a luxury car or take a couple of lavish vacations, your wealth wouldn’t increase, though your credit card balance might.

Tips on Avoiding Credit Card Debt

Perhaps these facts about debt will motivate you to work on avoiding a credit card balance. If so, the following strategies could help.

• Review different budgeting methods, and find one that works for you. Many people use the popular 50/30/20 budget rule, for example. Also, see if your bank offers tracking and budgeting tools to help you rein in spending.

• Gamify savings. You might try sleeping on it rather than making impulse buys to see if the urge to spend passes; it often does. Or go on a spending freeze for a specific period of time or for a certain kind of purchase (say, no dining out in March; no clothing purchases in April).

• Try buying with cash or your debit card vs. plastic. That will help prevent your debt from snowballing.

• Consider trying a balance transfer card, which typically gives you a period of zero interest during which time you can pay down what you owe.

• Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with personal loan repayment terms of 2 to 7 years, you’ll pay down your debt faster.

• Seek help if you are really struggling to get your debt under control. Nonprofit organizations can help you accomplish this.

The Takeaway

Now that you know some facts about credit card debt and ways to pay it off, you may be looking for a new card that better suits your financial and personal goals. Shopping around to compare features, such as interest rates and rewards, can be a wise move.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

What are the main causes of credit card debt?

Credit card debt can crop up in a variety of ways. Sometimes it’s because expenses get pricier, whether due to lifestyle creep or inflation. Other times, it’s not being mindful about daily spending and making impulse buys. Given how many Americans have more credit card debt than money saved, it’s a common but challenging issue.

How much does the average person have in credit card debt?

Credit card debt facts reveal different angles on this number. The average American household has $6,731 in credit card debt.

How serious is credit card debt?

Credit card debt can be very serious. It’s high-interest debt, and it can be difficult to pay off. It can make it hard for individuals to save for their future and can negatively impact their debt to income ratio, which can be an issue when applying for loans.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOCC-Q425-001

Jan

2026

Stacks of coins increasing in height with a graduation cap on top, symbolizing the growing cost of education and student loans.

Are Student Loan Interest Rates Monthly or Yearly?

By Melissa Brock | student_loan | Comments Off

Student loan interest is what you pay your lender as a cost of borrowing money for your education. The interest you’re charged is a percentage of your original loan amount, or the principal of your loan.

If you’re not sure what your student loan interest rate is, you can find it on your loan agreement. There, it’s listed as an annual rate. But because you pay interest monthly when you make your loan payments, you may be wondering whether student loan interest is monthly or yearly.

The answer is: The interest rate is yearly, but interest is added to your loan balance monthly.

It’s a little confusing, but we’re here to help. Understanding how interest is calculated, and learning ways to help minimize the amount you pay, could help you reduce your student loan debt.

Table of Contents

How Student Loan Interest Works
How Student Loan Interest Is Calculated
Yearly Student Loan Interest Rate vs Monthly Cost
How to Minimize Student Loan Interest Over Time
FAQ

Key Points

• Student loan interest rates are typically expressed annually, but the accrued interest is added to the principal balance each month.

• Interest on student loans generally accrues daily, steadily accumulating over time.

• The interest rate of student loans varies by loan type. The rates for federal student loans are set annually by Congress.

• Federal student loans have fixed interest rates, while private student loans may have fixed or variable rates.

• Making extra loan payments, paying interest while in school, loan consolidation, and student loan refinancing are ways to potentially help manage student loan debt.

How Student Loan Interest Works

Student loan interest begins to accrue on private student loans and many types of federal loans as soon as the loans are issued. The interest generally accrues daily, and the total accrued amount is calculated and added to the loan balance monthly. That means your loan balance, and the amount of interest you pay, can grow over time.

Daily Interest

Most federal loans use a simple daily interest formula. You accrue one day’s worth of interest for each day you owe money.

The daily interest rate is calculated by dividing your loan’s annual interest rate by 365 (for the number of days in the year). For example, let’s say you borrow $10,000 in student loans at an annual interest rate of 6.00%. Your daily interest rate is .00016 (or 0.06 / 365). Next, to figure out how much you are charged in interest each day, multiply your daily interest rate by your student loan balance (.00016 x 10,000) to get the answer: $1.60 a day.

Monthly Payment

As noted above, student loan interest accrues daily but it’s typically added to your loan balance every month. When you make a student loan payment, most of that payment goes toward interest and the rest goes toward your principal balance.

Any unpaid student loan interest will be added to the amount you owe. In some cases, the unpaid interest can capitalize, meaning that it’s added to your principal balance, increasing the principal amount. The interest is then calculated on the new higher principal balance, increasing the cost of your loan.

Another factor that affects your monthly student loan payments is whether the loans have fixed or variable interest rates. Fixed rates stay the same throughout your loan term. Variable interest rates can change over time, which can change the monthly amount you owe. All federal student loans have fixed interest rates; private student loans may have fixed or variable rates.

Annual Rates

Annual interest rates on student loans vary by loan type. The rates on federal student loans are set by Congress and determined by formulas specified in the Higher Education Act of 1965.

These are the federal student loan interest rates for federal loans disbursed on or after July 1, 2025 and before July 1, 2026:

• Direct Subsidized and Direct Unsubsidized loans for undergraduate students: 6.39%

• Direct Unsubsidized loans for graduate or professional students: 7.94%

• Direct PLUS loans for parents and graduate or professional students: 8.94%

Private student loan rates vary by lender. The average student loan interest rates for private loans in December 2025 ranges from 3.18% to 13.99% or more. The actual rate an individual borrower may get is based on factors such as their financial profile, including their credit history.

How Student Loan Interest Is Calculated

The student loan interest rate is based on a formula that consists of multiplying the outstanding principal loan balance by the number of days since the borrower made their last payment, and multiplying that by the daily interest rate.

Keep reading to learn more about the annual percentage rate (APR) of student loans, the daily interest formula, and when interest accrues.

Annual Percentage Rate (APR)

There is a difference between student loan APR vs. interest rate. The APR is the total cost of the loan per year. It includes the interest rate plus any fees, such as an origination fee, which is the cost of processing the loan. For that reason, a loan’s APR may be higher than its interest rate. The APR gives a borrower a more realistic look at what the overall cost of a student loan will be.

It’s important to be aware that federal student loans publish interest rates — not APRs — so the published interest rate doesn’t reflect the full cost of the loan. There is an origination fee of 1.057% for all Direct Subsidized and Unsubsidized federal student loans and a fee of 4.228% for Direct PLUS loans.

Daily Interest Formula

As mentioned, federal loans use a simple daily interest formula:

Interest = (Loan Balance x Interest Rate) / Number of Days in the Year

For example, let’s say you borrowed $20,000 at a 7.00% interest rate. In this case, the daily interest would look like this:

Daily interest = ($20,000 x 0.07) / 365 = $3.83 per day

To determine how much interest you’ll pay over the month, multiply the daily rate by the number of days since your last payment. Using the example above, let’s say it’s been 30 days since your last payment. The formula would look like this:

$3.83 x 30 = $114.90 in interest.

When Does Interest Accrue?

Interest accrues at different times on student loans, depending on the type of loan you have. Interest accrues immediately after the disbursal on all federal loans except subsidized loans. The government pays the interest on Direct subsidized loans while borrowers are in school and for the six-month grace period after graduation.

Interest accrues on private student loans as soon as the loan is disbursed.

Yearly Student Loan Interest Rate vs Monthly Cost

The interest rate on your student loan is yearly, but interest on the loan typically accrues daily and is added to your loan monthly to help determine your monthly payment amount. You can use a student loan payment calculator to figure out your monthly payments.

When you make a payment, your loan servicer will apply your payment to the interest first, then to the principal of your loan. If you pay only the minimum amount due, most of your payment will go toward interest, and your principal loan balance won’t be reduced by much.

Recommended: Applying for No-Interest Student Loans

How to Minimize Student Loan Interest Over Time

There are a few techniques that can help you minimize your student loan interest over the long-term.

Extra Payments

Making extra payments can help you reduce your principal, which can help you save on interest over time. If you get a windfall, such as a birthday gift, or you earn a little extra cash, putting that money toward your student loans can help you pay down your debt faster.

Tell your lender to direct the extra payment toward your loan principal, which can help you shrink the balance.

Early Payments

You can make interest-only payments on your student loans while you’re still in school and during the grace period after graduation. Paying money toward the interest during those times can keep the interest from building up.

Another bonus: If you are paying interest on your loans, you may be eligible to deduct student loan interest come tax time.

Refinancing or Consolidation

You can consolidate, or combine, your federal student loans into a Direct Consolidation Loan. The new loan will have a fixed interest rate, which is a weighted average of the interest rates of the loans being consolidated, rounded up to one-eighth of a percent. This may not necessarily lower your loan payments, but it can make your loans easier to manage, since you’ll have just one payment, instead of multiple payments, to deal with.

If you have private loans, one option is to refinance your student loans. When you refinance, you exchange your current loans for a new private loan from a private lender. Ideally, you may be able to qualify for a lower interest rate, which could lower your monthly payments.

Just be aware that if you refinance federal student loans, you’ll no longer be eligible for federal programs and benefits like income-driven repayment plans, deferment, and forgiveness.

The Takeaway

Student loan interest accrues daily, and the interest is added to your student loan balance monthly. It’s important to stay on top of the interest so that it doesn’t build up over time, costing you more money. Making extra payments, paying down the interest on your loans when you’re still in school, and loan consolidation and refinancing are some of the options you can explore to help manage your student loan debt.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

When does student loan interest start accruing?

Interest begins accruing on private student loans and also on some federal student loans as soon as they are disbursed. However, if you have subsidized federal Direct loans, you don’t have to pay the interest that accrues while you’re in school and during the six-month grace period after graduation. With unsubsidized federal loans and PLUS loans, however, you’re immediately responsible for the interest that accrues.

Do I pay more interest if I make monthly payments?

No, you won’t pay more interest if you make monthly student loan payments. In fact, when you make monthly payments, you’ll pay less in interest over time. If you pay more than the minimum due, the amount you owe in interest will shrink even more. However, if you don’t pay your interest each month, your interest charges will get added to the amount you owe, causing your loan to grow over time.

Can I pay student loan interest early?

Yes, you can pay student loan interest early. You can even pay it while you’re still in school. Paying even small amounts toward the interest can make a difference over time, so if you have a part-time job or you get some extra money, you may want to consider putting some of those funds toward your loans.

Does interest stop accruing when I defer my student loans?

No, interest does not stop accruing when you defer your student loans. During deferment, your loan payments are temporarily paused. However, the interest continues to accrue during that time, and if you have unsubsidized loans, you’re responsible for paying it.

Are student loan interest payments tax deductible?

Yes, student loan interest payments are tax deductible for a qualified student loan. You can deduct the lesser of $2,500 or the amount of interest you paid during the year. When your modified adjusted gross income (MAGI) reaches a certain limit, the deduction eventually phases out.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSLR-Q425-062

Jan

2026

A man with glasses carefully reviews documents, checking for a possible tax preparer mistake.

My Tax Preparer Made a Mistake — What Can I Do?

By Jacqueline DeMarco | Money & Life, relay | Comments Off

Hiring a tax preparer can give you some peace of mind that your taxes are being filed correctly. But even a pro can sometimes make a mistake. Depending on the error, you could end up getting a refund you’re not entitled to or paying more in taxes than you actually owe.

The good news is, there are ways to get your tax return back on track if an error was made. Keep reading to learn what steps you can take when you realize your tax preparer made a mistake.

Table of Contents

Who Are Tax Preparers
Pros and Cons of Working With a Tax Preparer
Are Tax Preparers Worth It
Fixing Errors on Filed Returns
Am I Responsible If My Tax Preparer Makes a Mistake
What Happens If a Tax Preparer Messed Up Your Return
What to Do If a Tax Preparer Messed Up
FAQ

Key Points

• If a tax preparer makes a mistake, review the error and gather supporting documents.

• Contact the preparer to discuss the mistake and request a correction.

• If the preparer is unresponsive, file an amended return with the IRS.

• Keep records of all communications and corrections for future reference.

• Consider switching to a more reliable tax preparer for future tax filings.

Who Are Tax Preparers?

There are different types of tax return preparers, but typically, they’re enrolled agents, attorneys, or certified public accountants (CPAs). There is no professional credential that qualifies someone to be a tax preparer. However, they do need to have an IRS Preparer Tax Identification Number (PTIN) in order to help clients file their tax returns.

Because a tax preparer is dealing with your sensitive financial information, it’s important to do your due diligence before hiring one. Research potential tax preparers’ backgrounds and references, and if possible, ask for referrals from trusted friends and family members. It’s also a good idea to look for a tax preparer who specializes in the types of taxes you need help with, such as self-employment taxes.

Track your credit score with SoFi

Check your credit score for free. Sign up and get $10.*

Pros and Cons of Working With a Tax Preparer

Thinking about enlisting the help of a professional as you prepare for tax season? You may want to consider the advantages and disadvantages of working with a tax preparer.

Pros

• Ample experience (if you hire the right professional)

• Expert insight into potential tax credits and deductions

• Peace of mind that your taxes are filed properly

Cons

• May be more expensive than doing your own taxes

• Mistakes can still happen

• Less privacy

Another way to make getting ready for tax season easier is to gain a holistic picture of your financial life. A money tracker app like SoFi’s can allow you to track spending, set financial goals, and view all bank account balances in one place. You can also monitor credit scores.

Are Tax Preparers Worth It?

Whether or not a tax preparer is worth the money depends on a few different factors. These may include:

• How much time it saves you. If you have complicated taxes or are concerned you might miss the tax filing deadline, you may find that an hour or so with a professional tax preparer is more efficient and therefore worth the cost.

• The complexity of your taxes. People who only have one source of W-2 income, take the standard deduction, and have no investments may be able to easily file their taxes without the help of a tax preparer. However, a small business owner dealing with payroll or a freelancer with dozens of sources of income may find that hiring a tax preparer could save them a lot of headaches.

• The tax preparer’s experience. An experienced, qualified tax preparer can ensure your returns are prepared correctly and perhaps even help you identify tax credits or deductions.

• Cost. Some tax preparers charge the same or slightly more than the cost of purchasing tax preparation software, while others are on the more expensive side. Depending on your needs, hiring one may or may not be worth budgeting for.

Fixing Errors on Filed Returns

If you realize your tax preparer made an error on your filed tax return, all is not lost. You can amend it using Form 1040-X, Amended U.S. Individual Income Tax Return. Common errors include having the wrong information regarding income, credit, tax liability, filing status, or deductions.

It’s also possible to amend a return in order to claim an unused tax credit. Generally, mistakes on an income tax return need to be amended within three years (this includes extensions).

Am I Responsible If My Tax Preparer Makes a Mistake?

While it may seem like the professional tax preparer would be on the hook for any mistakes made on income taxes they help file, it’s the taxpayer who’s held responsible. However, the tax preparer can help make any necessary corrections.

What Happens If a Tax Preparer Messed Up Your Return

If you realize your tax preparer made a mistake (or multiple mistakes) on your income tax return, you need to file an amended return with the IRS. Ideally, the tax preparer would help with this process, but they aren’t required to do so.

What to Do If a Tax Preparer Messed Up

Mistakes happen. Here are the steps you can take to get things back in order in the event your tax preparer makes an error on your income tax return.

Make Sure It’s the Preparer’s Fault

Before you start pointing fingers at the tax preparer, make sure they’re the one who made the mistake. Tax preparers require a lot of detailed information so they can file an income tax return on your behalf, and it’s easy to give them the wrong information by mistake. Do some digging to see who’s really at fault and what to do if you’re missing tax documents.

Check Your Contract

Once you’re certain the tax preparer made a mistake, take a look at the contract you signed with them. It should outline whether the preparer will file an amendment for you at no extra charge and what their liabilities are.

Contact the Preparer

The next step would be to contact the tax preparer to alert them of the mistake and to provide them with any related correspondence from the IRS.

Notify the IRS and Professional Organizations

If the mistake is substantial — and not your fault — you’ll need to convince the IRS of the tax preparer’s negligence. You may also want to outline any damages you’ve suffered as a result of the error. The IRS is then responsible for investigating who is responsible. If the tax preparer is at fault, this can result in their tax identification number being rescinded.

It’s also possible to report the tax preparer to a professional organization they belong to, like the American Bar Association or the American Institute of Certified Public Accountants.

Tell It to the Judge

Ideally, the tax preparer will help you remedy the mistake, and everyone can go on their merry way. However, if the error caused a lot of issues for you, you may choose to sue for negligence. Taking the issue to a judge is a last resort, but it’s an option if you want to file a standard professional malpractice complaint with your state court.

Recommended: Free Credit Score Monitoring

The Takeaway

Even the most qualified tax preparers can sometimes make a mistake. If a tax pro made an error on your tax return, all is not lost. The IRS allows you to fix errors on an income tax return, and in most cases, your tax preparer should be willing to help out. If you suspect the preparer was negligent when filing your return, you can report them to the IRS. As a last resort, you can even sue them (though hopefully it would never come to that).

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

Is a tax preparer liable for mistakes?

At the end of the day, even if the tax preparer is the one to make the mistake, the taxpayer is the one held liable by the IRS. That said, some contracts with taxpayers do include taking responsibility for errors.

How much money will the IRS fine a tax preparer who has made a mistake filing a client’s taxes caused by lack of due diligence?

Simple mistakes are one thing, but if a professional tax preparer doesn’t follow tax rules, regulations, or laws, they can be penalized financially by the IRS. The amount of that fine depends on different factors, like how many violations occurred.

Can you report a tax preparer to the IRS?

Yes, it is possible to report a tax preparer to the IRS. It’s important to submit a detailed report to the IRS and to outline any damages suffered.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

Photo credit: iStock/Rockaa

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SORL-Q425-080

Jan

2026

A couple sits on the front steps of a pretty bungalow, toasting their home purchase with champagne glasses in hand.

What Credit Score Is Needed to Buy a House?

By Jody McMaster | Credit, Family Finances, Home Ownership, mortgage, personal_loan | No Comments

What’s your number? That’s not a pickup line; it’s the digits a mortgage lender will want to know — your credit score for a mortgage application. Credit scores range from 300 to 850, and for most mortgage-seekers, a good credit score to buy a house is at least 620. The lowest interest rates usually go to borrowers with scores of 740 and above whose finances are in good order, while a score as low as 500 may qualify some buyers for a home loan, but this is less common.

Table of Contents

Why Does a Credit Score Matter?
Do I Have One Credit Score?
What Is the Minimum Credit Score to Buy a House?
Steps to Improve Your Credit Score Before Buying a House
Other Factors Besides Credit Score That Affect Mortgage Approval

Key Points

• A credit score of at least 620 is generally needed to buy a house, but FHA loans may accept scores as low as 500 with a higher down payment.

• Paying attention to credit scores before applying for a mortgage can lead to lower monthly payments.

• A higher credit score can save borrowers money by securing lower interest rates over the loan’s term.

• When two buyers are purchasing a home together, lenders look at both buyers’ credit scores.

• Credit scores are not the only factor; lenders also evaluate employment, income, and bank accounts.

Why Does a Credit Score Matter?

Just as you need a résumé listing your work history to interview for a job, lenders want to see your borrowing history, through credit reports, and a snapshot of your habits, expressed as a score on the credit rating scale, to help predict your ability to repay a debt.

A great credit score vs. a bad credit score can translate to money in your pocket: Even a small reduction in a homebuyer’s mortgage rate can save thousands of dollars over time.

Do I Have One Credit Score?

You have many different credit scores based on information collected by Experian, Transunion, and Equifax, the three main credit bureaus, and calculated using scoring models usually designed by FICO® or a competitor, VantageScore®.

To complicate things, there are often multiple versions of each scoring model available from its developer at any given time, but most credit scores fall within the 300 to 850 range.

Mortgage lenders historically have focused on FICO scores. Here are the categories:

• Exceptional: 800-850

• Very good: 740-799

• Good: 670-739

• Fair: 580-669

• Poor: 300-579

Here’s how FICO weighs the information:

• Payment history: 35%

• Amounts owed: 30%

• Length of credit history: 15%

• New credit: 10%

• Credit mix: 10%

Mortgage lenders will pull an applicant’s credit score from all three credit bureaus. If the scores differ, they will use the middle number when making a decision.

If you’re buying a home with a non-spouse or a marriage partner, each borrower’s credit scores will be pulled. The lender will home in on the middle score for both and use the lower of the final two scores (except for a Fannie Mae loan, when a lender will average the middle credit scores of the applicants).

What Is the Minimum Credit Score to Buy a House?

The median FICO score for homebuyers in late 2025 was a very healthy 735, according to Realtor.com® data. Fortunately, not everyone buying a home will need a score this high to qualify for a home loan. After all, the median credit score in the U.S. is 715. (Using the median versus the average credit score necessary to buy a house helps ensure that unusual buyers with extremely high or low scores don’t throw off the calculations.) How low can you go and still buy a house? The answer hinges on your mortgage.

Credit Score Requirements by Loan Type

What credit score do you need to buy a house? The answer will depend on the type of mortgage loan you’re seeking. If you are trying to acquire a conventional mortgage loan (a loan not insured by a government agency) you’ll likely need a credit score of at least 620. The best credit score to buy a house is 740 or better, because that will help you obtain a lower interest rate. But many buyers purchase a home with a lower score.

With an FHA loan (backed by the Federal Housing Administration), 580 is the minimum credit score to qualify for the 3.5% down payment advantage. Applicants with a score as low as 500 will have to put down 10%.

Lenders like to see a minimum credit score of 620 for a VA loan, though some will go lower, to 600.

A score of at least 640 is usually required for a USDA loan, though borrowers with strong compensating factors, such as a healthy savings, might qualify at 620.

A first-time homebuyer with good credit will likely meet FHA loan requirements, but a conventional mortgage will probably save them money over time. One reason is that an FHA loan requires upfront and ongoing mortgage insurance that lasts for the life of the loan if the down payment is less than 10%.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.

Steps to Improve Your Credit Score Before Buying a House

Working to build credit over time before applying for a home loan could save a borrower a lot of money in interest. A lower rate will keep monthly payments lower or even provide the ability to pay back the loan faster. Here are some ideas to try:

1. Pay all of your bills on time. “Payment history makes a bigger impact on a person’s credit score than anything else — 35%. So the most important rule of credit is this: Don’t miss payments,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

2. Check your credit reports. Be sure that your credit history doesn’t show a missed payment in error or include a debt that’s not yours. You can get free credit reports from the three main reporting agencies. To dispute a credit report, start by contacting the credit bureau whose report shows the error. The bureau has 30 days to investigate and respond.

3. Pay down debt. Installment loans (student loans and auto loans, for instance) affect your DTI ratio, and revolving debt (think: credit cards and lines of credit) plays a starring role in your credit utilization ratio. Credit utilization falls under FICO’s heavily weighted “amounts owed” category. A general rule of thumb is to keep your credit utilization below 30%.

4. Ask to increase the credit limit on one or all of your credit cards. This may improve your credit utilization ratio by showing that you have lots of available credit that you don’t use.

5. Don’t close credit cards once you’ve paid them off. You might want to keep them open by charging a few items to the cards every month (and paying the balance). If you have two credit cards, each has a credit limit of $5,000, and you have a $2,000 balance on each, you currently have a 40% credit utilization ratio. If you were to pay one of the two cards off and keep it open, your credit utilization would drop to 20%.

6. Add to your credit mix. An additional account may help your credit, especially if it is a kind of credit you don’t currently have. If you have only credit cards, you might consider applying for a personal loan.

How Long It Takes to See Changes in Credit Score

Working on your credit scores may take weeks or longer, but it can be done. Should you find an error in a credit report, you can expect it to take up to a month for your score to change. And if you haven’t been paying bills on time, it could take up to six months of on-time payments to see a significant change.

Other Factors Besides Credit Score That Affect Mortgage Approval

Credit scores aren’t the only factor that lenders consider when reviewing a mortgage application. They will also require information on your employment, income, debts, and bank accounts. Your down payment will be a factor as well. Putting 20% down is desirable since it often means you can avoid paying PMI, private mortgage insurance that covers the lender in case of loan default. But many homebuyers — particularly first-time buyers — put down less than 20% and simply factor PMI into their monthly budget.

Other typical conventional mortgage loan requirements a lender will consider include:

Debt-to-Income Ratio

Your debt-to-income ratio is a percentage: the total of your monthly debts (car payment, student loan payment, alimony, etc) divided by your gross monthly income. Most lenders require a DTI of 43% or lower to qualify for a conforming loan. Jumbo loans may have more strict requirements.

Employment and Income History

A mortgage lender will want to verify your employment and income and may request pay stubs and w-2 statements. Don’t be surprised if the lender also reaches out to your employer to confirm your employment. If you are self-employed, you may be asked for a profit-and-loss statement for your business and for more than a year or two of tax returns. Lenders are looking for borrowers who have a steady income source and can be relied upon to repay a large sum over a long period of time.

Available Savings and Assets

Having cash reserves or investments that you can liquidate in the event that you need to pay your mortgage bill is another factor a prospective lender will consider. So lenders will ask you for information about your accounts, including savings and 401(k) accounts. The lender is also looking to be sure that you have the resources to cover the down payment amount and closing costs related to the home purchase.

A lender facing someone with a lower credit score may increase expectations in other areas like down payment size or income requirements.

If you want to see how all these factors come together in your financial profile to determine what size loan you might be approved for, you can first prequalify for a mortgage with multiple lenders. Ultimately, you may want to seek out mortgage preapproval from at least one lender so you have a very clear picture of your home-buying budget and can move forward swiftly when you find a home you love.

Recommended: 31 Ways to Save for a House

The Takeaway

What credit score is needed to buy a house? The number depends on the lender and type of loan, but most homebuyers will want to aim for a score of 620 or better. A better credit score is not always necessary to buy a house, but it may help in securing a lower interest rate.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What credit score is considered good for buying a house?

Generally speaking, you’ll want a credit score of 620 or better if you are looking at a conventional loan or VA loan. A USDA loan would require at least 640 from most borrowers. An FHA loan offers more lenient terms: You could qualify with a score as low as 500, though 580 will allow you to put down a low, 3.5% down payment.

Can I buy a home with a low credit score?

It is possible to get a mortgage and purchase a home with a credit score as low as 500 if you obtain an FHA loan and put down a 10% deposit. If you are looking at a different loan type, then you will likely need at least a 620 score, though if you have a healthy savings and solid income, you may be able to squeak by with a slightly lower credit score.

Do mortgage lenders use FICO or VantageScore?

Mortgage lenders have historically relied on FICO scores but now can use either FICO or VantageScore for loans delivered to Fannie Mae and Freddie Mac, the two entities that buy mortgages from lenders, thereby guaranteeing most of the mortgages in the U.S.

How can I improve my credit score before applying for a mortgage?

The most important thing you can do to help nurture your credit score before applying for a loan is to make your payments in full and on time. Other things, such as requesting credit line increases (but not spending up to the limit) or diversifying your credit mix by adding a personal loan to your credit cards, can help. So can not closing old, unused credit cards. But by far, on-time payments should be your number-one goal.

What other factors do lenders look at besides credit score?

A lender considering a mortgage application will look at your income (both the raw number and how consistent your earnings have been). Your debts, and the ratio of debts to income, will also be important, as will your savings in cash and other assets. Your down payment amount could also factor into a lender’s decision about qualifying you for a loan.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency. ^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency. Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOHL-Q126-006